Northrop Grumman 2014 Annual Report Download - page 41

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NORTHROP GRUMMAN CORPORATION
-32-
2013 - Service sales for 2013 decreased $688 million, or 6 percent, as compared with 2012, primarily due to lower
service sales at Information Systems partially offset by higher service sales at Aerospace Systems. The decrease at
Information Systems is due to lower service sales across a number of programs, as described in the Segment
Operating Results section above. The higher service sales at Aerospace Systems reflects the revision in the
classification of certain contracts from product to service, as described above, and higher volume on certain military
aircraft service contracts in 2013.
Service costs for 2013 decreased $553 million, or 5 percent, as compared with 2012, primarily due to lower service
volume at Information Systems, partially offset by higher service sales at Aerospace Systems, consistent with the
change in service sales described above.
BACKLOG
Total backlog includes both funded backlog (firm orders for which funding is authorized and appropriated) and
unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not
included in backlog until the time the option or IDIQ task order is exercised or awarded. For multi-year service
contracts with non-U.S. Government customers having no stated contract values, backlog includes only the amounts
committed by the customer. Backlog is converted into sales as costs are incurred or deliveries are made.
Backlog consisted of the following at December 31, 2014 and 2013:
2014 2013
$ in millions Funded Unfunded Total
Backlog Total
Backlog
Aerospace Systems $ 9,438 $ 10,625 $ 20,063 $ 18,321
Electronic Systems 6,845 2,870 9,715 9,037
Information Systems 2,963 3,152 6,115 6,864
Technical Services 2,127 179 2,306 2,811
Total backlog $ 21,373 $ 16,826 $ 38,199 $ 37,033
Approximately $19.3 billion of the $38.2 billion total backlog at December 31, 2014, is expected to be converted
into sales in 2015. U.S. Government orders comprised 82 percent of total backlog at the end of 2014. International
orders, including foreign military sales, accounted for 14 percent of total backlog at the end of 2014. Domestic
commercial backlog represented 4 percent of total backlog at the end of 2014.
New Awards
2014 - The estimated value of contract awards recorded during 2014 was $25.0 billion. Significant new awards
during 2014 include $4.1 billion for the E-2D Advanced Hawkeye program, $1.4 billion for the Global Hawk
program, $1.3 billion for the F-35 program, $727 million for the B-2 program and $560 million for the Virginia
Class Submarine program.
2013 - The estimated value of contract awards recorded during 2013 was $21.9 billion. On a net basis, awards
during 2013 totaled $20.9 billion, reflecting $1 billion of adjustments during the first half of the year to reduce
Information Systems unfunded backlog principally associated with expired periods of performance on active
contracts, including several previously awarded task orders on IDIQ contracts. Significant new awards in 2013
include $2.2 billion for the F-35 program, $1.3 billion for the E-2D Advanced Hawkeye program, $866 million for
the AEHF program, $694 million for the B-2 program, and $632 million for the Triton program.
LIQUIDITY AND CAPITAL RESOURCES
We endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business
and to maximize shareholder value. In addition to our cash position, we use various financial measures to assist in
capital deployment decision-making, including cash provided by operating activities, free cash flow, net debt-to-
equity and net debt-to-capital. We believe these measures are useful to investors in assessing our financial
performance and condition.
During the second quarter of 2013, the company's board of directors authorized a new share repurchase program of
up to $4.0 billion of the company’s common stock ("2013 Repurchase Program"). At the same time, the company
announced its plan to repurchase shares with the goal of retiring approximately 25 percent of its then outstanding
shares (60 million shares) by the end of 2015, market conditions permitting. As of December 31, 2014, we had
repurchased 42.2 million shares towards that goal. Additionally, during the fourth quarter of 2014, the company's